McDonald Investments upgraded Red Hat (RHAT ) to buy from hold, and set a $14 target.
Analyst Brent Williams thinks open source software -- Linux in particular -- will hit critical mass in the next 12 months to 18 months; Red Hat is a key pure-play beneficiary. He notes the coming release of Red Hat Enterprise Linux will be the first example of a shift in product strategy that will result in a significantly increased lock-in to the company's product family.
Williams notes this should boost renewal rates and suppress price pressure from competitors. He says all of this increases the possibility of upside revenue surprises, which is key to moving the stock in the next 12 months to 18 months. Williams raised his 10 cents fiscal 2005 (Feb.) earnings per share estimate to 14 cents.